A federal judge dealt a blow to Disney’s efforts to stop Redbox from selling download codes for Disney movies, denying the Burbank studio’s request for an injunction.

Disney sued Redbox in December, arguing that the kiosk company’s sale of download codes amounted to copyright infringement. It went to court to halt the practice. Redbox responded with a countersuit alleging that Disney’s home entertainment group was abusing its copyright to stifle low-cost competition.

Judge Dean Pregerson on Tuesday denied Disney’s request for a preliminary injunction, saying the Burbank entertainment giant had failed to show it would win the day in court.

At issue is Redbox’s practice of reselling the digital download codes included in Disney “Combo Pacs,” which combine Blu-Ray disc and a DVD.  Disney cited small print at the bottom of the packaging which notes these download codes “are not for sale or transfer.” On Disney Movies Anywhere website, and another site, RedeemDigitalMovies, Disney’s home entertainment unit includes additional language that ties the consumer’s use of the download code to ownership of the physical discs.

Disney argued that Redbox was contributing to copyright infringement by encouraging consumers to violate the terms of its digital download license and make unauthorized reproductions of Disney’s movies. Redbox countered that this amounts to copyright misuse.

Pregerson said the issue is whether these restrictive digital license terms grant Disney “power beyond the scope of its copyright.”  Here, the judge found that Disney was asking consumers to forego their rights to do whatever they wish with the discs to download the movie.

“This improper leveraging of Disney’s copyright in the digital content to restrict secondary transfers of physical copies directly implicates and conflicts with public policy enshrined in the Copyright Act, and constitutes copyright misuse,” Pregerson wrote.

The judge also described as “demonstrably false” labeling on Disney’s Combo Pac boxes that claims “this product .. cannot be resold or rented individually.”

Disney made a number of other arguments, namely that Redbox had violated the terms of its contract with Disney by reselling the codes — in violation of the language on the packaging. The judge had to determine whether this was an enforceable license, and the mere act of opening the Combo Pac amounted to accepting the license terms.

“The phrase “Codes are not for sale or transfer” cannot constitute a shrink wrap contract because … Disney’s Combo Pack box makes no suggestion that opening the box constitutes acceptance of any further license restrictions,” the judge wrote.

The judge, however, sided with Disney in its interpretation of the first sale doctrine — a facet of copyright law which notes that a copyright owner’s exclusive right to distribute a copy of a copyrighted work is exhausted after the first sale. Redbox argued that the digital code is covered under this principle. Disney argued that no digital copy exists until the user downloads it — and that the studio owns the exclusive right to reproduce a copyrighted work.

Pregerson agreed with Disney, arguing that the first sale doctrine doesn’t apply here, “because no particular, fixed copy of a copyrighted work yet existed at the time Redbox purchased, or sold, a digital download code.”

Redbox issued a statement Wednesday morning, hailing the judge’s ruling.

“The court adopted many of Redbox’s legal arguments and ultimately agreed that Disney could not demonstrate a likelihood of succeeding on the merits of any of its five causes of action,” said Redbox spokesperson Kate Brennan. “From Redbox’s perspective, the court’s decision was a commonsense application of the law of contracts to the unenforceable fine print on the outside of Disney’s combo packs. That is, the court found that Disney does not form a contract with Redbox or any other consumer, much less a license, restricting what the consumer can do with product it purchases off the shelf at retail.”